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Hawkish Fed

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Yellen has spoken:

Confident hawkish overnight comments from the FOMC chair Janet Yellen has given equity markets a clear indication that interest rates will likely to move this side of the year. Yellen’s latest comments have helped ease the anxieties of a global slowdown and increased investor’s appetite for risk.

Yellen said that “it will be likely appropriate to raise the target range of the federal funds rate sometime later this year and to continue boosting short term rates at a gradual pace thereafter as the labour market improves further and inflation moves back to our 2% objective“.

Whilst the previous FOMC decision pushed rate hike expectations further back to 2016, her comments last night are reassuring given market participants the much need certainty that they crave to make long term investment. Despite the positive move towards normalisation this year, the timing of the hike still eludes us which is still causing market uncertainty.

Today’s Fed’s Bullard comments reiterated that a strong case remains for the normalization of rates:

  • Fed policy still stuck within “emergency mode”.
  • Prudent policy to normalize rates over medium term.
  • Large majority of FOMC projects rate liftoff this year
  • Bullard says Fed policy will remain exceptionally accommodative.
  • Bullard repeats case for normalizing Fed policy is quite strong
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